Real estate investing and buying an investment property can be done with the intention of making money in a few years after the value of the asset has appreciated. However, most real estate investors are interested in buying rental property and generating high rental income and monthly cash flow. In fact, traditional rental properties are the best cash flow investments. They continue to attract investors from all different sectors looking to generate a consistent income on a monthly basis. Here, we will explore why that is as well as walk you through how to find cash flowing rental properties.
What Are Traditional Rental Properties?
You’ve probably heard of the term ‘traditional rental’, but what exactly does it mean? Traditional, or long-term rentals, are properties that are rented out for long periods of time, typically 6 months or more. The lease between the landlord and tenant is what binds the long-term rental period.
Long-term rentals must comply with Fair Housing Laws and local landlord-tenant laws. As such, they do not face real legal issues, unlike their Airbnb short-term rental counterparts.
Long-term rental properties are known for their consistent, month-to-month rental income. Because they can enjoy high occupancy rates, they are excellent for monthly cash flow.
What Is Cash Flow?
Before talking about why traditional rentals are the best monthly cash flow investments, we need to answer an important question. What is cash flow, anyway? Real estate cash flow is the difference between the rental income of a property and its expenses. It is, therefore, calculated using this simple equation:
Cash Flow = Total Rental Income – Total Expenses
In other words, cash flow tells investors if they are making money and how much of it is made. A property with positive cash flow, or a positively geared property, is a property that generates more income than expenses. As a result, it is considered profitable. The opposite, however, is a negative cash flow property. These properties cost more than the income that they produce.
Why Are Traditional Rental Properties the Best Cash Flow Investments?
The main reason traditional properties are considered the best cash flow investments is because they can produce a reliable profit. With a long-term lease in place, these properties are the best investment for monthly income. Once an investor finds a good tenant, a rental property can be occupied for months or even years. And multi-family properties will produce the greatest cash flow on a monthly basis. A fully occupied fourplex, for instance, will generate more monthly cash flow than a single-family property. In addition, long-term rentals come with high appreciation rates which could lead to higher rental rates and higher cash flow down the line. With these factors in mind, there is no doubt that traditional rental properties are the best cash flow investments.
How to Find the Best Traditional Cash Flow Investments
Now that you know that traditional rentals are the best for monthly cash flow, you’re probably wondering how to find them. Without the proper tools, finding cash flow properties can take weeks or even months of research. With Mashvisor’s real estate investment software, however, you can find the best traditional cash flow investments in a matter of minutes!
There are three steps to find rental properties for sale. Mashvisor’s tools will help you with every step of the way.
1. Find Locations to Invest In
First, you will need to search for the best rental markets to invest in. As you know, location is the most important aspect when investing in real estate. Therefore, you should be using a reliable analytical tool when picking a location. Mashvisor’s real estate heatmap is what you need. After entering your desired city in the search bar, the heatmap will present the various neighborhoods to invest in. The heatmap’s filters will help you find the areas with positive cash flow income properties. That’s because they allow you to view how neighborhoods are performing in terms of rental income and cash on cash return, among other metrics. Any neighborhoods highlighted in green after each of these filters is selected will be where you want to search for cash flow properties. You can also play around with other filters like listing price and those relevant to Airbnb properties if you wish.
2. Narrow Down Investment Properties
Once you’re set with a location, you can move on to narrowing down the long-term rentals for sale. As mentioned previously, not all traditional properties are the same. There are many types of traditional rentals, such as single-family, multi-family, condo, and townhouse investment properties. Properties also differ in regard to other features, such as the number of bedrooms and bathrooms, price, and more. Be sure to narrow down your search based on features you want your property to have.
Once again, Mashvisor is here to help. Mashvisor’s property finder tool will allow you to accurately select the best cash flow investments in any market. After you set the filters, it will automatically generate a list of top-performing properties (for cash on cash return) in the locations of your choice. This is sure to lead you to high cash flowing properties.
3. Analyze an Investment Property for Sale
The last part of finding a cash flow rental property is to analyze prospective properties. By analyzing the property, you will find out if it will generate positive cash flow in the long-run. Mashvisor’s cash flow calculator (part of our investment property calculator) is the ultimate tool for a cash flow analysis. The calculator’s analysis is available to investors on the property page of every selected listing. You can also get a cash flow analysis for off market properties. The property’s estimated cash flow, along with other metrics like cash on cash return and cap rate, will be shown:
What’s more, is that the calculator is interactive. This allows you to analyze cash flow investments based on your inputs. If you are on a tight budget and expect to cut some costs like property management fees, make adjustments to the rental expenses section. You can also use the mortgage calculator to factor in your financing method. With the change in data, the calculator will estimate a new cash flow and ROI.
The Bottom Line
All in all, traditional rental properties are the perfect cash flow investments. To start searching for the best residential investment properties for sale that are sure to generate positive cash flow, CLICK HERE to start your 7-day FREE trial with Mashvisor!